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The Department of Telecom will drop the three-year mandatory lock-in period for promoters of telecom companies under the new mergers and acquisition rules.
The lock-in period was introduced to prevent fly-by-night players from making windfall gains by selling spectrum at market price after acquiring spectrum from the Government under the first-come-first-served policy.
But since fresh spectrum allocation is being done only through auction and older players who had got spectrum under the earlier dispensation have completed more than three years, the DoT has decided that the lock-in period is not necessary.
“Further lock-in condition may hamper the progress and roll out of capital intensive telecom projects as shareholders may not be able to invest further equity,” said the draft M&A norms being finalised by the DoT. The final policy is expected to be announced this week.
No exit route
Industry representatives, however, said removing the lock-in period alone will not be enough to spur consolidation in the telecom sector.
“There are 7-8 players in each circle and at least 2-3 players are looking to exit due to poor financials and increasing debt.
“The proposed M&A policy does not seem to have given any exit route for such players and also make rules clear on issues such as spectrum trading,” said an executive of a mobile company on condition of anonymity as the final policy has not been made public. But the draft M&A policy seen by Business Line does not leave much room for the operators to either sell or buy. One of the dampeners is the rule inserted by the DoT that the buyer will have to pay the Government the market price for any spectrum the seller holds under the older dispensation of first-come-first-served.
For example, if Sistema Shyam were to acquire Aircel, then the Russian player will have to pay to the Government for the GSM spectrum held by Aircel. While the DoT has argued that this is being done to ensure operators buy spectrum through auction instead of using the M&A route, industry watchers said that the policy misses the point.
“Telecom companies in India buy each other primarily to acquire more spectrum. The value of network and subscriber is not that great in a market where one can hire towers for pan-India footprint and the average revenue per user is not more than Rs 150 a month,” said an industry analyst.
Usage charge
The other major concern is the policy on spectrum usage charge. While the TRAI has proposed a flat fee, the DoT is keen to retain the existing slab system where operators with higher amount of spectrum have to pay a higher revenue share. So, even though the proposed M&A policy allows a company to hold up to 50 per cent of the total spectrum available in a circle, a higher charge for using spectrum will make mergers an expensive proposition.
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